Talgo USA to Scott Walker: Pay up!

Wisconsin’s arch-conservative, Tea-Party-favorite governor, Scott Walker, may have gotten more than he bargained for (or didn’t bargain for) when he killed his state’s department of transportation plan to acquire new passenger trainsets and build a higher-speed line connecting Milwaukee to Madison shortly after taking office in 2011.

Talgo USA Inc. has filed a $65.9 million claim against the State of Wisconsin on Thursday, Nov. 7, 2013, setting up a probable lawsuit and reviving contentious debate over Gov. Scott Walker’s rejection in 2011 of $810 million in federal stimulus money for a higher-speed rail passenger line. The claim is top of an existing lawsuit that Talgo filed in November 2012 to take possession of two trainsets it built for the state but have been idled due to Walker’s canceling of the planned Milwaukee to Madison line.

The two trainsets Talgo built for Chicago-Milwaukee Hiawatha service sit in storage as a lawsuit Talgo filed against the State of Wisconsin plays out. After an unsuccessful attempt at mediation, in November 2012, Talgo filed a lawsuit in Dane County Circuit Court asking Judge Juan Colas to declare that Talgo had the right to terminate the contract. If it prevails, Talgo would get to keep the trainsets and the $42 million the state has paid to it. The company claims it is owed another $10 million on top of what it has already been paid. If Talgo is able to keep the trainsets, it will sell them to another state, the company’s attorney said.

In its $65.9 million claim filing with the Wisconsin state Claims Board, Talgo also maintained that Wisconsin owes bond holders an additional $70 million because it borrowed that much for the two mothballed trainsets but never took possession of them.

“If the Talgo’s reasoning is correct, taxpayers would have to pay Talgo $65.9 million and immediately refund $70 million to bond holders rather than paying that sum off over the coming years,” writes Patrick Marley in the Milwaukee Journal Sentinel. “Even then, the state still wouldn’t own the trains. The request for more money comes on top of about $40 million the state has already paid Talgo.

“At issue are two trainsets that were to be used for Amtrak’s existing Hiawatha line from Milwaukee to Chicago, as well as for a proposed high[er]-speed rail line from Milwaukee to Madison that eventually could have extended to Minneapolis.

“In all, Talgo is seeking $65.9 million from the state Department of Transportation, including $18.6 million in unpaid invoices and interest, $23.5 million in lost business, $10.5 million in damage caused by state officials ‘continually defaming’ Talgo’s reputation, and $9.8 million in lost maintenance work. The remainder covers an array of other costs, such as for insurance and legal work.

“Speaking to reporters Thursday, Assembly Speaker Robin Vos (R-Rochester) emphasized that the Talgo contract included a provision voiding the deal if lawmakers didn’t provide money for the trains in the state budget. Vos said Republicans had simply used that clause and refused to hand over the remaining money for what they saw as a bad deal. ‘There’s an out’ in the contract, Vos said.

“But in its filing, Talgo says the state had improperly invoked that provision, writing that ‘Wisconsin’s purported funding shortfall was deliberately staged by Gov. Walker and the DOT in an effort to evade the state’s contractual commitments to Talgo.’

“Part of the dispute revolves around whether the state or Talgo was responsible for the cost to test the trains. Talgo maintains the state invented the disagreement over testing as a ruse to claim a breach in the contract. Its filing includes an email from Transportation Secretary Mark Gottlieb to Walker's office in February 2011—less than two months after Walker was sworn in—discussing attempts to sell the trains to other states. ‘The state manufactured this contractual dispute out of its desire to kill the train project,’ the claim states.

“The claim also contends the DOT recognized it needed to pay for testing—and tried to come up with a way to pay for it without seeking more money from the Legislature. The department proposed advancing money to Talgo under its maintenance agreement so the firm could use the funds to pay for testing. That way it appeared Talgo, rather than the state, was paying for testing.

“‘The DOT personnel involved were aware that this unorthodox strategy was being utilized to cover its miscalculation and were cautious with the related documentation and electronic communication thereof. To this end, numerous calls and meetings took place to deal with this issue and representatives at the DOT attending these meetings would testify, if required, confirming this point,’ the claim says. The DOT later canceled the payment, ‘presumably because the DOT’s management realized the arrangement was inconsistent with Governor Walker’s goal to reject the trainsets rather than complete the purchase,’ according to the claim.

“DOT spokeswoman Peg Schmitt said in a statement the state has incurred $52 million in costs—most of which has gone to Talgo—for the trains. The trains have not been turned over to the state, do not meet specifications, and are not compliant with the federal Americans with Disabilities Act, Schmitt said. ‘We’re waiting for delivery of completed trains that will provide the state with ownership of an asset for which public dollars were used,’ Schmitt said in her statement.

“Talgo is represented by Lester Pines, a Madison attorney and Democrat who has repeatedly clashed with Walker. He has been involved in lawsuits against Walker over restrictions on collective bargaining, limits on abortion, and a law requiring voters to show ID at the polls.”

“The Claims Board consists of Corey Finkelmeyer, an assistant attorney general and the chairman of the board; Greg Murray, chief counsel at Walker’s Department of Administration; Brian Hagedorn, Walker’s chief legal counsel; Sen. Joe Leibham (R-Sheboygan); and Rep. Pat Strachota (R-West Bend). Hagedorn will recuse himself from considering Talgo’s filing, Walker spokesman Tom Evenson said. Leibham and Strachota are members of the Legislature’s Joint Finance Committee and in that capacity have voted against funding for Talgo in the past.

“If the Claims Board sides with Talgo, it would then recommend the Legislature approve funding for the firm. With Republicans controlling both houses of the Legislature, that appears unlikely. If Talgo’s claim is rejected—either by the Claims Board or lawmakers—the company would be free to file suit in circuit court.”